Journals Proceedings

Abstract

Preceding investigations on the effects of exchange rate on money demand has assumed a linear relationship between exchange rate and money demand thereby estimating a linear models. This study adopted the Shin et al. (2014) Nonlinear ARDL model to investigate the asymmetric effects of exchange rate on money demand for Malaysia. Annual data for money supply, GDP, interest rate and exchange rate for the period 1975 to 2016 were employed. The results show that Malaysian Ringgit depreciation and appreciation exerts an asymmetric effects on the money demand over both short run and long run period. The implication is that the effect of exchange rate fluctuations on money demand is more through the expectations channels rather than the wealth effect.